Holy cow! Dow surges to a record

Blue chip stocks finish trading at 11,727.34

The Dow Jones industrial average closed at a new high Tuesday, climaxing a nearly seven-year comeback from a market collapse, the terrorist attacks of 2001 and war in the Middle East.

After flirting with new heights for several days, the world's oldest and most famous stock market barometer closed at 11,727.34, topping the record by 4.36 points.

The Dow traded as high as 11.758.95 during the day, surpassing its previous intraday high of 11,750.28. Both previous records were reached Jan. 14, 2000.

The index powered to its record mostly on gains by four stocks: Boeing, Wal-Mart, United Technologies and J.P. Morgan Chase. In all, 23 Dow stocks moved up and seven moved down Tuesday.

The market also was helped by a dip in oil prices to a seven-month low.

But in looking at Tuesday's session, analysts said, don't expect a return of the late 1990s, when "irrational exuberance" propelled the stock market to unsustainable highs.

Investors should be mindful that while stocks are relatively cheap now compared to where they were at the 2000 peak, they are still not cheap relative to long-term market history, said Dorsey Farr, a principal in French Wolf & Farr, an Atlanta investment adviser.

The Dow's latest achievement came in a stock market that is more conservative than the Wall Street of early 2000, when the economy was barreling along at a 5.7 percent annual growth rate, unemployment was just over 4 percent and gasoline sold for $1.34 per gallon.

At that time, investors were still piling into high-tech stocks, a strategy that proved disastrous. In 2006, the market's gains come only after investors' careful parsing of economic data and corporate earnings reports.

To reach new highs, the Dow had to recover not only from the high-tech collapse, but also from economic slump and the effects of the Sept. 11, 2001, terror attacks.

The stock market was further shaken by corporate scandals at companies including Enron and WorldCom, and the Dow sank to a five-year closing low of 7,286.27 on Oct. 9, 2002, nearly 38 percent off its record close.

Since hitting bottom, stocks have steadily rebounded in a four-year bull market that added more than $7.2 trillion in market value to U.S. stocks.

The Dow has risen 61 percent since its bearish low, helped by more than four years of solid corporate profit growth and, more recently, the Federal Reserve's decision to halt its more than two-year string of interest-rate boosts.

"You couldn't give away these companies," said Brett Gallagher, co-head of global equities at Julius Baer Investment Management in New York, which manages about $40 billion.

"Now we're in a reverse situation where these companies are getting more attention, and I think they deserve it."

Wall Street professionals tend to see Dow records as psychologically important to investors but not important to market fundamentals such as profits, economic growth and investor sentiment. Most analysts regard the broader Standard & Poor's 500 index as more indicative of market trends.

But, like it or not, most market watchers calculate changes and make predictions and public pronouncements based on the Dow.

The iconic index of 30 blue chip U.S. stocks is the first of the big-stock indexes to top its previous high. The S&P 500's high close was 1,527.46, and the index remains more than 12 percent away from that milestone. The Nasdaq is even further off its highs, and no one expects to it eclipse its record of 5,048.62 anytime soon.

So far, 2006 has been a positive year for stocks. After a midyear correction, all the major indexes have risen briskly through August and September, which historically have been weak months for stocks.

All of this is favorable going into the final quarter of the year, which is typically a strong period for stocks.